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‘It’s going to be a mess’: What small businesses applying to the SBA’s Paycheck Protection Program need to know

April 3, 2020, 4:10 AM UTC

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As small businesses prepare to apply for the new Small Business Administration’s Paycheck Protection Program loans (as part of a $2.2 trillion stimulus package), banks are calling it: They’re not ready for the rollout of the program.

Banks like JPMorgan Chase emailed customers on Thursday evening stating that the bank “will most likely not be able to start accepting applications on Friday, April 3, as we had hoped.”

According to numerous reports, banks are concerned that the $350 billion lending program for small businesses impacted by the coronavirus won’t be ready when it launches Friday due to a lack of time, necessary guidelines, and set requirements from the administration, Small Business Administration (SBA), and the Treasury.

“They’re not ready at all. They’re desperately awaiting guidance on how to do this,” Ami Kassar, CEO of small-business loan advisory firm MultiFunding, told CNBC Thursday. “I think it’s going to be a mess for weeks.”

Some new guidance was released late on Thursday evening from the SBA and Treasury in the form of a 31-page document, “literally hours before it starts,” and banks are moving “heaven and earth to get a system in place and running to help America’s small businesses and the millions of men and women who work at them,” Richard Hunt, head of the Consumer Bankers Association, told CNBC.  

Ken Logsdon, a partner at international law firm Dorsey & Whitney, tells Fortune, “I would be absolutely shocked if it gets rolled out [Friday].”

The effective lack of regulations and detailed guidelines (including to the extent lenders might be held liable for loans) has those in the legal field scratching their heads.

“It’s remarkable to me in my 15 years swimming around the legal world…to see an implementing program that [is] regulatory driven without any regulations. It’s been really a bizarre experience,” Carrie Cherveny, SVP of strategic client solutions for global insurance brokerage Hub International’s risk services division, tells Fortune.

Given the hazy regulatory and guideline backdrop, if banks are able to extend loans right away, it’s likely they’ll take care of their own first.

“What we are hearing from a lot of our bank clients is that they are being inundated with applications, but they are going to be taking care of their current, good customers first,” notes Dorsey & Whitney’s Joseph Lynyak, who specializes in the banking and financial services industry.

In the midst of all the confusion, here’s what we do know now:

Can I go to any bank to apply to the Paycheck Protection Program?

Businesses can apply through any existing SBA 7(a) lender at more than 1,800 banks that already offer Small Business Administration loans, but the program is also expanding to other traditional banks, credit unions, and Farm Credit system institutions.

You will need to check with your local community or commercial bank, credit union, or ask your bank for the loan officer who deals with SBA 7(a) loans and the PPP program.

According to the administration, businesses can go to any existing SBA lenders, as well as any FDIC-insured institutions, credit unions, or financial-technology lenders that have signed up for the program, Treasury Secretary Steven Mnuchin said.

However, Dorsey & Whitney’s Logsdon recommends that businesses work with banks that they already have a relationship with—”Ideally it’s a bank that already has this SBA program in place,” he notes. That may help speed up the process, as banks are likely to start the loan process first with customers they already know.

When can I apply for a PPP loan?

Small businesses and sole proprietorships can apply for loans starting on Friday, April 3. Starting April 10, independent contractors and self-employed individuals can apply, according to the Treasury guidelines. Loans will be given on a first-come, first-served basis.

Will they check my credit?

Based on the available guidelines so far, there is currently no prescriptive guidance on credit requirements. However, Logsdon points out that “the [CARES] Act was designed so those types of considerations weren’t going to be necessary.”

What documents will I need when applying for a PPP loan?

Small businesses will need to provide documentation (including payroll documentation) “verifying the number of full-time equivalent employees on payroll as well as the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the eight-week period following this loan will be provided to the lender,” per the SBA.

When applying for loan forgiveness, borrowers will need to provide documentation of expenses like payroll, mortgage interest, rent, or utilities in their application.

What if I have other loans outstanding?

There is currently no guidance on whether or not outstanding loans will affect the PPP loan, but Logsdon suggests “it has no bearing.”

“This really is about trying to get paychecks covered for average Americans—you could have a massive loan facility that you have access to, but that’s not a showstopper,” he suggests. “If you are impacted by COVID-19, you can take advantage of this program. The intended recipients are the employees.”

The only note is that borrowers will have to certify that they have not and will not receive another loan under the PPP program.

How much can I borrow through a PPP loan?

Small businesses can borrow up to 2.5 times their average monthly payroll from the previous year through the Paycheck Protection Program, which provides forgivable loans to small businesses intended to help pay their employees during the coronavirus crisis, but payroll is capped at $100,000 per employee, and the loans are capped at $10 million per business.

What can I use a PPP loan for?

Small businesses can use the loan for payroll costs and benefits, including vacation, parental, family, medical and sick leave, health and retirement benefits, and state and local taxes.

The SBA’s guidelines state: payroll costs, including benefits; interest on mortgage obligations, incurred before Feb. 15, 2020; rent, under lease agreements in force before Feb. 15, 2020; and utilities, for which service began before Feb. 15, 2020.

Related: For many small-business owners, the PPP may not be enough to ensure they survive

How much will I have to pay back?

According to the SBA, the Paycheck Protection Program loan will be “fully forgiven” if the money is used as outlined.

For employers who keep or quickly rehire their employees and maintain salary levels, the loan will be forgiven. However, “forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease.”

Decisions on the forgiveness of the Paycheck Protection Program loan will be made within 60 days of forgiveness submission.

The SBA notes the loan has a maturity of two years and a fixed interest rate of 1% (changed from 0.5% on Thursday). Loan payments will be deferred for six months.

How long will it take to get the money?

Unfortunately, at this point, it’s unclear how long it will take for businesses to get the money. Lynyak points out that banks and lenders are likely to extend the loan to current customers first, so it may take even longer for those who are not part of the existing network.

A senior government official said the applications will not require SBA approval, and funds could be made available on the same day you apply. However, because of all the issues with figuring back-end repayments and loan forgiveness (and all the due diligence from lenders that may come as part of that process), Lynyak says, “I would personally be really surprised if money is going to be flowing before the end of May.”

What are the fees?

There aren’t any fees—the SBA has waived fees for the loan.

What if I’ve already laid off some of my staff? Will my loan be forgiven?

In order to get full loan forgiveness, companies need to maintain pre-crisis levels of full-time employees. Companies are able to lay off staff while they have the SBA loan, but forgiveness of the loan will be reduced (meaning they’ll have to repay a certain amount) in the event they have reduced full-time staff or salaries.

According to the SBA, small businesses have “until June 30, 2020, to restore your full-time employment and salary levels for any changes made between Feb. 15, 2020, and April 26, 2020” for forgiveness of the loan.

More must-read finance coverage from Fortune:

—Even with the PPP, small-business owners say it’s not enough to ensure they can survive
When are stimulus checks coming? It could take a while
What to do if you can’t pay your bills this month
—Social distancing creates $8 trillion in economic benefits, study says
Everything you need to know about furloughs—and what they mean for workers
—Millions won’t be able to pay their bills this month. What financial experts advise
—Listen to Leadership Next, a Fortune podcast examining the evolving role of CEO
—WATCH: U.S. tax deadline moved from April 15 to July 15

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